If you were counting on a pre-approval to secure your new property, looking to refinance, or shopping for a home loan, things have changed in the wake of the coronavirus outbreak.
Lenders are revising their lending criteria, with a focus on borrowers considered to be in high-risk industries.
“Generally where a customer is in a severely affected industry such as tourism, hospitality or retail, then their loan is declined unless we can prove that their income is unaffected,” says Otto Dargan, managing director at homeloanexperts.com.au.
Dargan says casual income in particular is seen as extremely high risk and only a few lenders are accepting it at all.
“Banks are far less likely to rely on unstable income types, for example casual, contract, temporary, seasonal, commission, overtime or bonuses. Usually they’ll use the base income only and may use a small per cent of any additional income.”
Dargan says some lenders have also dropped the maximum loan-to-value ratio (LVR) they will consider.
“It makes sense to not offer 95 per cent loans if the property market may fall,” he says. “They’re being conservative because everyone is a higher risk than they were just a month ago. Some have put in place minimum credit scores so that they’re just approving the lowest risk people.”
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Financial adviser, mortgage broker and founder of Wealthful Chris Bates says Macquarie Bank issued new guidelines for brokers dealing with clients in high risk industries. In some cases Macquarie may have its credit assessor contact a PAYG applicant’s employer to confirm employment status and current income.
For all self-employed applicants, regardless of industry, the application must include the March quarter business activity statement (BAS) and bank statements no older than 14 days at the time of approval.
Bates says bank policies will continue to change as banks shift from helping existing customers to protecting their loan books with new customers.
“No job is safe in this environment,” he says. “Casual employees will need detailed supporting evidence, contractors could be avoided altogether and [the evaluation of full-timers] will be industry-specific with every job and employer looked at for any signs of distress.”
Bates warned that lenders might also pull out of postcodes they considered high risk areas, especially if those areas had an oversupply of housing.
For investors, rental income may be discounted if a property lacks a paying tenant.
“We’ve had some customers with three or more properties where the tenants aren’t paying rent and so lenders are cautious where someone is overly reliant on rent income,” says Dargan.
Chris Foster-Ramsay of Foster Ramsay Finance says in addition to Macquarie Bank he knows of two other lenders who have flagged they will no longer lend to those in high-risk industries, including tourism, hospitality and airlines, while ME Bank has confirmed it may be checking loans that have already been approved but are not yet settled to ensure the bank is lending responsibly.
“If you’ve got a loan that’s been approved, they will be making spot-checks to make sure applicants haven’t lost their job,” he says. “At worst the loan will not be funded and you’ll have a very problematic case on your hands, but we hope that commonsense will prevail and an arrangement will be made between the lender and borrower.”
New online lender Athena has emailed some pre-approved customers to say “we can’t proceed with your application right now” in a bid to protect itself from a market downturn. On its website, Athena has announced a hold on all new applications and invited would-be borrowers to join a waitlist.
What should buyers do?
Given the current low interest rate environment, Bates says it may be a good time for refinancing to lock in a lower rate providing your occupation and income remains stable.
“Rates are at all-time lows and you’re getting better deals than you ever have,” he says. “You can build buffers through equity by extending your loan. And you might not be able to refinance later if you lose your job, so it’s one of the best things you can do to lower your risk right now.”
Dargan says those with an existing pre-approval should be aware that it may no longer be valid.
“A pre-approval isn’t rock solid, lenders can and will renege on them if they see a risk,” he says. “It’s best to have a cooling-off period or to discuss the risks with your mortgage broker before you go to auction.”
Dargan says if your income is in any way uncertain you should consider putting your property buying aspirations on hold, or at the very least talk to your employer before investing.
On the other hand, if your income is assured then Dargan believes the next few months are likely to be one of the best times to buy.